Nationalisation of east coast mainline is the only viable option | Nils Pratley

The decision was “very finely balanced”, said transport secretary Chris Grayling, meaning both options on the east coast mainline were terrible from this point of view. He chose the right one.

Keeping Stagecoach, under the Virgin Trains banner, on the job would have looked appalling. The operator got its numbers spectacularly wrong when it agreed to pay £3.3bn for an eight-year deal to run the London-to-Edinburgh railway route. It couldn’t even limp into the third year of the deal. To be awarded a “not for profit” follow-on arrangement until 2020 – but one that, critically, could have included a performance-related payment at the end – would have been an unacceptable reward for failing to honour financial commitments.

Nationalisation is problematic since Grayling has had to scramble around for expertise to run his “Operator of Last Resort”. No wonder he spent more time trumpeting his revival of the “iconic” London and North Eastern Railway name. But a period of public ownership was the only pragmatic solution.

Transport secretary Chris Grayling’s decision was surprising given his vehement opposition to public control of rail. But he said the move was partly to expedite the planned east coast partnership, which would see a contract re-let to a private firm in 2020. However, several train companies face similar struggles to Stagecoach and Virgin after overbidding for franchises and events may yet force his hand again.

Will East Coast rail services remain nationalised?

It’s not the plan, but it’s possible. The pressure to avoid any further franchise collapse – or to see Stagecoach-Virgin emerge as operators again, with a diminishing market of bidders – could see the government struggle to get a new operator in place.

So who will now run the trains?

Control will pass in June to the “operator of last resort” – an Arup-led group contracted on the government’s behalf. The train service will be rebranded London North Eastern Railway.

What will the impact be for passengers?

In the short term, little or none. New British-assembled Hitachi trains are already on order, paid for by the government.

How much will it cost the public?

The Department for Transport assessment was that either immediate option, a fresh Virgin Trains contract or direct control, was broadly similar in cost. Analysis by rail regulators in 2013 found East Coast required less subsidy than any other line when in public hands, while it delivered more than £1bn to the Treasury. Stagecoach promised vastly more, £3.3bn by 2023, but found it impossible to pay up.

Photograph: Jack Taylor/Getty Images Europe

The interesting question, though, is what comes next. Nationalisation is intended to be temporary since, come 2020, Grayling will unleash his shiny new public-private partnership on the east coast. Indeed, he suggested the chance to “shape the new partnership” by taking immediate control was a critical factor in his decision.

How, though, is this partnership intended to work? It has been six months since Grayling unveiled his “strategic vision for rail” and it remains a mystery to outsiders how publicly owned Network Rail, which owns the track, and the private train operators are meant to work as “one single team operating the railway”.

In loose outline, the ambition seems fine. Everybody can see that it would better and cheaper if both parties spent less time squabbling over who is responsible for delays. But what’s the financial set-up? The train operators, as Stagecoach has just demonstrated, don’t have the balance sheets to shoulder the financial risks that come with big infrastructure upgrades. If ownership of the infrastructure will remain in the public sector “in all circumstances”, as Grayling told the Commons, how is the new model genuinely different from the current franchising system?

All we really know about Grayling’s big idea is that a route will have a single board with an independent chair and representatives from Network Rail and the train operating company. But life has already become more complicated because some routes have two or three operators – thus “independent members” will have to represent their interests. Are these competing financial interests really going to be resolved just by sitting in the same boardroom? Nationalisation of the East Coast may turn out of the easy bit.

CBI’s response to Carillion report misses the point

The CBI is obliged to wave the flag for its members in all weathers but it takes a peculiar mind-set to read the two select committees’ report on the failure of Carillion and conclude that the MPs were somehow attacking UK business in its entirety.

That, though, seems to be the CBI’s interpretation. “The language of the report suggests committee members think business in general is greedy and reckless,” says Josh Hardie, deputy director general. “This is irresponsible and wholly inaccurate.”

Hardie should turn to the 52 conclusions and recommendations at the end of the report where he will find the MPs saying the exact opposite of what he thinks they said. The final conclusion (page 96 for his ease of reference) includes this clear sentence: “Most companies are not run with Carillion’s reckless short-termism, and most companies are far more concerned by the wider consequences of their actions than the Carillion board.”

What was Carillion?

The Wolverhampton-based firm was second only to Balfour Beatty in size.

It was spun out of the Tarmac construction business in 1999 and steadily took over rivals, such as Mowlem and Alfred McAlpine. It expanded into Canada and built a construction arm in the Middle East.

Carillion then diversified into outsourcing, taking on contracts such as running the mailroom at the Nationwide building society to helping upgrade UK broadband for BT Openreach. It took over running public service projects, ranging from prison and hospital maintenance to cooking school meals. In 2017 a third of its revenue – £1.7bn – came from state contracts. It employs 43,000 people, with more than 19,000 in the UK.

The same passage, it is true, goes on to say that “Carillion could happen again” and that the individuals who failed to run, challenge, advise and regulate the company were often acting in line with their incentives. But those points don’t seem to be wildly contentious. Nor do they amount to an assault on the idea that public and private sectors can work together happily.

It would more useful if the CBI, instead of grumbling about language and tone, told us what it thinks about the contents of the report. Does it agree that the Competition and Markets Authority should investigate the auditing market with a view to breaking up the big four firms – Deloitte, EY, KPMG and PwC – or separating their audit operations from their consulting divisions?

The “voice of business” currently has no opinion, beyond saying the audit profession “must continue to evolve.” When it gets round to forming a proper view, let us hope it remembers to disclose that KPMG, the Carillion auditor strongly criticised by the MPs, and the other three big firms, are leading members of the CBI.